Tax planning is the analysis of a financial situation or plan from a tax perspective. The purpose of tax planning is to ensure tax efficiency, with the elements of the financial plan working together in the most tax- efficient manner possible. Tax planning is an important part of a financial plan, as reducing tax liability and maximizing eligibility to contribute to retirement plans are both crucial for success.

1. Dr. Laxmikant N. Soni
NET (Commerce), SET (Commerce), NET (Management), SET (Economics)
Dr. Laxmikant N. Soni 1

2. Dr. Laxmikant N. Soni
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5. Tax planning is the analysis of a financial situation or
plan from a tax perspective. The purpose of tax planning
is to ensure tax efficiency, with the elements of the
financial plan working together in the most tax- efficient
manner possible. Tax planning is an important part of a
financial plan, as reducing tax liability and maximizing
eligibility to contribute to retirement plans are both
crucial for success.
Story behind Tax Planning
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6. Tax Planning is resorted to maximize the cash inflow
and minimize the cash outflow. Since Tax is kind of cost,
the reduction of cost shall increase the profitability.
Every prudence person, to maximize the return, shall
increase the profits by resorting to a tool known as a
Tax Planning.
Why every person needs Tax Planning?
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7. Meaning of TAX PLANNING
Understanding what is tax planning is one of the most important aspect of
financial planning. It is a practice where one analyzes his financial situation
based on tax efficiency point of view so as to invest and utilize the resources
optimally. Tax planning means reduction of tax liability by the way of
exemptions, deductions & benefits.
Tax planning in India allows a taxpayer to make the best use of the various tax
exemptions, deductions and benefits to minimize his tax liability every
financial year. As responsible citizens of the country, paying Income Tax on
time, on your income is mandatory for the country to grow. However, majority
amongst us still refrain from paying income tax which in turn curbs country’s
growth and put you under direct suspicion of IT official where if found guilty,
you are subject to heavy fines and imprisonment. Thus instead of avoiding
income tax, one should readily pay tax yet save money by investing in tax
saving instruments under different sections of the IT Act, 1962.
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8. How is tool of TAX PLANNING exercised?
TaxPlanning should bedone by keeping following factors in mind:
⚫ The Planning should be done before the accrual of income. Any planning
done after the accrual income is known as Application of Income and it may
lead to a conclusion that there is a fraud.
⚫ Tax Planning should be resorted at the source of income.
⚫ The choice of location of business , undertaking, or division also play a very an
importantrole.
⚫ Residential Status of a person also plays an important role. A person should
arrange his stay in India insuch a way that he is treated as Non-resident in
India.
⚫ Choice to Buy or Lease the Assets is also used for Tax Planning. When the
assets are bought, depreciation is allowed and when asset is leased, lease
rental is allowed as deduction.
⚫ Capital Structure decision also plays a major role. Mixture of debt and
equity fund should be balanced, to maximize the return on capital and
minimize the tax liability. Interest on debt is allowed as deduction whereas
dividend on equity fund is not allowed as deduction.
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9. Objectives of TAX PLANNING
Objectives
of TAX
PLANNING
Reduction of
Tax Liability
Minimization
of litigation
Productive
Investment
Healthy
growth of
economy
Economic
stability
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10. Types of TAX PLANNING
Types of
TAX
PLANNING
Purposive tax
planning
Permissive tax
planning
Long range and Short
range tax planning
Planning taxes with a particular objective in
mind.
Tax planning that is under the framework of
law.
Planning done at the start and end of a
fiscal year respectively.
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11. Permissive Tax Planning :
Permissive Tax Planning means making plans which are permissible
under different provisions of the law, such as planning of earning income
covered by Sec.10, specially by Sec. 10(1) , Planning of taking advantage
of different incentives and deductions, planning for availing different tax
concessions etc.
Purposive Tax Planning :
It means making plans with specific purpose to ensure the availability of
maximum benefits to the assessee through correct selection of
investment, making suitable programme for replacement of assets,
varying the residential status and diversifying business activities and
income etc.
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12. Short Term Tax Planning :
Short range Tax Planning means the planning thought of and executed at
the end of the income year to reduce taxable income in a legal way.
Example : Suppose , at the end of the income year, an assessee finds his
taxes have been too high in comparison with last year and he intends to
reduce it. Now, he may do that, to a great extent by making proper
arrangements to get the maximum tax rebate u/s 88. Such plan does not
involve any long term commitment, yet it results in substantial savings in
tax.
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13. Long Term Tax Planning :
Long range tax planning means a plan chalked out at the beginning or the
income year to be followed around the year. This type of planning does not
help immediately as in the case of short range planning but is likely to help
in the long run.
Example: If an assessee transferred shares held by him to his minor son or
spouse, though the income from such transferred shares will be clubbed
with his income u/s 64, yet is the income is invested by the son or spouse,
then the income from such investment will be treaded as income of the son
or spouse. Moreover, if the company issue any bonus shares for the shares
transferred , that will also be treated as income in the hands of the son or
spouse.
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16. ⚫ Tax avoidance is an art of dodging tax without actually
breaking the law. It is a method of reducing tax incidence by
availing of certain loopholes in the law. The expression Tax
avoidance will be used to describe every attempt by legal
means to prevent or reduce tax liability which would
otherwise be incurred, by taking advantage of some
provision or lack of provision in the law.
⚫ It excludes fraud, concealment (hide money) or other
illegal measures. In other words, it is a device which
technically satisfies the requirement of the law but in fact
it isn’t in accordancewith the legislative intent.
Tax Avoidance
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17.  Substantial loss of much needed public revenue, particularly in a welfare
state like ours
 Serious disturbance caused to the economyof the country by piling up of
mountains of black money directly causing inflation
 Large hidden loss to the community by same of the best brains in the
country being involved in the perpetual Warwaged between tax avoider and
his expert team of the advisers, lawyers and accountants on one side and tax
officers and perhaps not so skilful advisers on the otherside
 Sense of injustice and inequality which tax avoidance arouses in the breasts
of those who are unwilling or unable to profit by it.
 Ethics(or lack of it) of transferring the burden of tax liability to the
shoulders of the guideless, good citizens from those of artful dodgers.
Causes of Tax Avoidance
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18. When a person reduces his total income by making false claims or by
withholding the information regarding his real income, so that his tax liability
is reduced, is known as tax evasion.
Tax evasion isn’t only illegal but it is also immoral, anti-social and anti-
national practice. Therefore under the direct tax laws provisions have been
made for imposition of heavy penalty and files case against tax evaders.
Tax Evasion
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19.  Level of taxes – higher
 The complexities of the tax system
 Misuse or mismanagement of revenue from tax
 Inequal distribution of amenities
 Nature of economy- agricultural
 Complexity in law- lack of info
 Unwillingness of taxpayers to pay taxes
 Corruptions in tax administration
 Undergrpund economy- black money
 Absence of spirit of civil responsibilities
 The instability of tax legislation and multiplicity of amendments
 Tax penalities- lower/higher, harsh
 Political corruptions
 Double taxation
Causes of Tax Evasion
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20. Tax Planning vs Tax Evasion
 Is an act within the r corners of the
act to achieve certain social and
economic activities and it isn’t a
colourable device to avoid tax.
 Is a legal right and a social
responsibility-certain social and
economic objectives are achieved.
 It requires through knowledge of
the relevantacts, social, economic
and political situation of the
country .
 It helps in economicdevelopment of
the country by providing additional
funds for investment in desired
channels.
 A tax plannerenjoys his fruits freely
and he doesn’t suffer from his
blood-pressure
 It is a deliberate attempt on the
part of tax payer by
misrepresentation of facts,
falsification of accounts, frauds.
 Isa legal offence coupled with
penaltyand prosecution.
 Itrequires boldness to infringe
the law.
 Itgenerates black moneywhich is
generally utilised for smuggling,
bribery,extravagant expenses oron
luxury
 A taxevaderremainsalways in
anxietyof searchand seizure
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21. TAX MANAGEMENT
• It means planning affairs in such a manner, so that the tax obligation is
managed properly.
• The objective of Tax Management is to comply with the provisions of
Income Tax Law and its allied rules.
• Tax Management helps in avoiding payment of interest, penalty,
prosecution etc.
• Every assesses liable to pay tax, needs to manage his/her taxes. Tax
management relates to management of finances for payment of tax,
assessing the advance tax liability topay tax in time.
• Tax management has nothing to do with planning to save tax it is just related
with operational aspect of payment of tax i.e. while managing his taxes a
person ensures that he/she is making timely payment of taxes without
running out of the money and he is complying with all the provisions of the
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22. Example:-
1. Tax Management deals with filing of Return in time.
2. Getting the accounts audited.
3. Deducting tax at source etc.
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23. Tax Planning Tax Management
The Objective of Tax Planning is
to minimize the tax liability
The objective of Tax Management is to comply with the
provisions of Income Tax Law and its allied rules
Tax Planning also
includes Tax
Management
Tax Management deals with filing of Return in time,
getting the accounts audited, deducting tax at source
etc
Tax Planning relates to future Tax Management relates to Past , Present, Future.
Past – Assessment Proceedings, Appeals, Revisions
etc.
Present – Filing of Return, payment of advance tax
etc.
Future – T
o take corrective action
Tax Planning helps in minimizing
Tax Liability in Short-Term and in
Long Term
Tax Management helps in avoiding payment of
interest, penalty, prosecution etc.
Tax Planning is optional Tax Management is essential for every assesse
Tax Planning Vs Tax Management
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